T.V.SUNDARAM IYENGAR & SONS LIMITED,MADURAI vs. JCIT, MADURAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

ITA No.472/Mds/2015 :- 2 -:

The assessee has raised two grounds i.e. (i) disallowance of 2. expenditure u/s.14A of the Act and (ii) claim of deprecation on UPS system and Voltage stabilizer.

disallowed �20,370/- towards excess deprecation. The last addition made by the Assessing Officer in respect of disallowance u/s.14A of the Act. The assessee company received dividend income of �23,82,94,000/- on investment of shares in companies and �7,72,000/- income from units of mutual funds and claimed exemption u/s.10(33) & u/s. 10(34) of the Act. The ld. Assessing Officer called for the expenses incurred by the company for earning exempt income. The assessee company explained that no expenses were incurred for earning dividend income on the shares and units of mutual funds the dividend warrants are credited directly into bank account. But the Assessing Officer under presumption of possibility, that some expenditure would have been incurred to earn dividend and mutual fund income and has worked out disallowance of expenditure u/s.14A r.w.r 8D applying clause (ii) to Sub-Rule (2) of Rule 8D based on the investment, calculated at �34,45,593/- and finally completed assessment u/sec 143(3) of the Act determining total income of �25,06,86,100/-. Aggrieved by the order of the Assessing Officer, the assessee has filed an appeal before the Commissioner of Income Tax (Appeals).

In the appellate proceedings, the ld. Authorised 4.

Representative made submissions on the notional interest in respect

ITA No.472/Mds/2015 :- 4 -: of disallowance u/s.36(1)(iii) of the Act and also raised grounds on the disallowance u/s.14A of the Act and also Assessing Officer was not justified in making an addition on assumption of expenditure has been incurred to earn such exempt income though no expenditure is debited to Profit and Loss account. The system of receipt of dividend on shares and units of mutual funds are directly credited under ECS system where no expenditure is incurred. The addition of notional expenditure relating to the exempt income is not justified as the main business of the assessee company being automobile spares sales and not investment based operation. The ld. Commissioner of Income Tax (Appeals) Act relying on judicial decisions deleted addition of interest u/sec. 36 (1)(iii) of the act but on ground of disallowance u/s.14A w.r.s. Rule 8D, on rely on assessee’s own case for earlier assessment years 2005-06 to 2008-09 and confirmed the disallowance of the Assessing Officer. On the last ground of claim of depreciation on UPS system and voltage stabilizer, the ld. Commissioner of Income Tax (Appeals) relied on the decision of assessee’s own case for the assessment years 2005-06 to 2008-09 confirmed the order of the Assessing Officer. Aggrieved by the order of the CIT(A) the assessee assailed an appeal before the Tribunal

Before the Tribunal, the ld. Authorised Representative 5. submitted that grounds on disallowance u/s.14A and claim of ITA No.472/Mds/2015 :- 5 -: depreciation on UPS system and voltage stabilizer are dealt by the Co- ordinate Bench of the Tribunal in assessee’s own case for the assessment year 2005-06 to 2008-09 in to 836/2012, dated 28.08.2013 and pleaded for deletion of disallowance u/s.14A of the Act as exempted income is earned without incurring expenditure.

On the other hand, the ld. Departmental Representative 6. relied on the orders of the lower authorities and pleaded for dismissal of appeal.

We heard the rival submissions of both the parties, perused 7. the material on record and judicial decisions cited. The assessee company in the earlier assessment year has made similar claim and challenged the same before the Tribunal on the grounds of disallowance u/s.14A r.w.s. 8D and the deprecation on UPS system and voltage stabilizer. The Co-ordinate bench in assesee’s own case in to 836/Mds/2012,dated 28.08.2013 for the assessment years 2005-06 to 2008-09 observed at page No.6 of para 8 as under:-

‘’8. After giving our thoughtful consideration to the aforesaid facts, we find that there is no dispute on factual position narrated above. In other words, the Assessing Officer took 5% of the postal and stationery charges etc in making the disallowance under sec.14A of the Act regarding assessment

ITA No.472/Mds/2015 :- 6 -: years 2005-06 and 2006-07. In assessment year 2007-08 and 2008-09, he followed rule 8D(2)(iii) in computing the disallowance. The Commissioner of Income Tax (Appeals) in all cases has followed rule 8D(2)(iii) in restricting the same. In this backdrop of facts, we find that the authorities below have not proceeded on correct factual and legal position regarding disallowance pertaining to exempt income in question under sec.14A by invoking rule 8D(2)(iii) as it has throughout been the case of the assessee that it had not incurred any expenses in earning the dividend income. As stipulated under sec.14A of the Act, the authorities below have nowhere recorded satisfaction about the correctness of the accounts submitted by the assessee. Not only this, in the case law of Godrej & Boyce (supra), the hon’ble Bombay high court has held that rule 8D comes into effect from the assessment year 2008-09. Thereafter, the hon’ble Delhi high court has further clarified that even with regard to assessment year 2008-09, rule 8D would apply only for the period from the date of its notification ie. 24.3.2008 to 31.3.2008 and not from 1.4.2007 to 23.3.2008. The ‘tribunal’ (supra) has also followed the case law of Maxopp Investments Ltd v. CIT aforesaid. In this view of the matter, we hold that the impugned disallowance in all the assessment years has been wrongly restricted/affirmed by the Commissioner of Income Tax (Appeals). At the same time, we also reiterate the legal position emanating from the aforesaid case law that in a case of ‘exempt’ income not covered by rule 8D, the disallowance under sec.14A of the Act has to be made by following ‘reasonable’ method. Hence, instead of remitting back the issue to the file of the Assessing Officer to re-examine the assessee’s cases afresh, we deem it appropriate that it would be in the interest of justice that the disallowance/addition in question in all assessment years of ₹18,72,495/-; ₹22,16,682/-; ₹22,83,500/- and ₹29,97,170/- is ITA No.472/Mds/2015 :- 7 -: further restricted to 50%. We order accordingly and grant part relief to the assessee. Accordingly, we order that the corresponding grounds in all the appeals stand partly allowed’’.

But this assessment year 2009-2010 being first year after amendment of Rule 8D, where the disallowance is hit by this amendment.

However, disallowance u/s.14A cannot be more than exempted income as held by Delhi High Court in the case of Joint Investment Pvt. Ltd vs. CIT 372 ITR 694. Therefore in view of the above judgment, we set aside the issue to the file of the Assessing Officer to verify the exempted income and calculate the disallowance in the light of the above decision. This ground of the assessee is partly allowed for statistical purposes.

‘’10. We have considered the assessee’s arguments and perused the relevant findings of the authorities below. The assessee does not dispute that the Commissioner of Income Tax (Appeals) has confirmed the disallowance by placing reliance on assessee’s own case for assessment year 2001- 02. It has neither pointed out any distinguishing features nor rebutted the findings in question. Therefore, we do not see

ITA No.472/Mds/2015 :- 8 -: any reason to interfere with the findings of the Commissioner of Income Tax (Appeals) under challenge qua the issue of depreciation pertaining to UPS and Voltage Stabilizers. Consequently, the relevant grounds in all appeals stand decided against the assessee’’.

We after considering the facts and reasoned finding of Commissioner of Income Tax (Appeals) are not inclined to interfere with order of the Commissioner of Income Tax (Appeals) on this ground and we uphold the same.

Order pronounced on Wednesday, the 13th day of January, 2016, at Chennai.